Sunday, 8 April 2012

Did Woolworths Chairman Mislead Shareholders?

On Saturday, 7 April 2012, Richard Willingham wrote in both the Sydney Morning Herald and The Age about complaints laid against James Strong, Woolworths Limited Chairman of Directors that he mislead shareholders at the 2011 Annual General Meeting. Click here to read the Sydney Morning Herald report.

This is a serious allegation.

The same story lead the AM program on ABC radio on Saturday's morning nation wide broadcast. Click here to read a transcript of the ABC Radio report. You can also listen to the Samantha Hawley's interviews with Simon Sheik of GetUp.org and Tim Costello on the same web page.

The essence of the story is that GetUp.org have lodged a complaint with the Australian Securities and Investment Commission asking them to investigate Woolworths Chairman James Strong about statements that he made.

Apart from being Woolworths' Chairman of Directors, some background about Mr Strong may be helpful. He is unquestionably a man whose statements demand respect and serious consideration.

James Alexander Strong has been admitted as a barrister and/or solicitor in various Australian state jurisdictions. He was CEO of Qantas from 1993 to 2001. He was National Managing Partner and later Chairman of law firm Corrs Chambers Westgarth, one of Australia's largest. In 2006, Mr Strong was made an Officer of the Order of Australia. Click here to read more about Mr Strong from the Woolworths Limited web site and the Kathmandu web site. Mr Strong is the Chairman of Directors of both companies.

On 19 March 2012, I wrote to the Company Secretary of Woolworths Limited on two matters. One of those matters related to Mr Strong's statements to shareholders. On that matter, here's what I wrote:

"I found statements of your Chairman, James Strong AO, at the last Woolworths AGM about Woolworths' pokie and liquor enterprise were not only false but mislead shareholders. I have attached MP3 files of what he said. You would be aware that the only restriction on liquor sales relating to hotel ownership (not pokie ownership) is in Queensland. Even that Queensland restriction is limited. There is no such restriction in other states where, as you would be aware, Woolworths conducts liquor sales operations independent of hotels.

As a consequence, I urge that the best course is that Mr Strong tender his resignation as a director of Woolworths Limited.

Mr Strong's conduct indicates a substantial misdirection in Woolworths actions regarding minimising the harm suffered by the public as a result of your poker machines. It casts doubt on the sincerity of Woolworths present course of action based upon voluntary pre-commitment; a measure that has already been trialled and deemed failed. The best course for Woolworths is to adopt the staged implementation of the $1 bet coupled with maximum losses of $120 per hour. This course is based upon effectiveness, evidence based, and the least costly."
The Company Secretary did not respond on this matter.

I based my finding on three statements made by Mr Strong. So that readers can make up their own minds as to whether Mr Strong mislead shareholders or not, I have attached videos of each statement. These statements are presented in chronological order. In order to consider the context of these statements, readers are urged to watch all three. They were not made next to each but separated by a period of time.

The first statement was part of Mr Strong's formal response to issues raised by shareholders. There are other matters dealt with before he turns to the topic of pokies.


The second James Strong response was made in reply to a shareholder who made the following statement:
"I personally would like to see Woolworths extract themselves from gaming machines".

The third Strong statement on the matter was the statement broadcast on ABC Radio. In my view, Mr Strong makes his views clear by as to what he meant by his prior two statements. This is not a casual or flippant observation. It seems intended to be serious guidance to shareholders. If anything Mr Strong seems to be annoyed by having to repeatedly give the same advice on behalf of the Woolworths' board of directors


As Mr Strong is making statements about Australian law, if the statements about the laws are incorrect, the matter is made worse in the light of Mr Strong's considerable legal background.

While shareholders at the 2011 Annual General Meeting were not referred to prior events, Mr Strong's written response to the 249P statement that accompanied the 2009 Notice of Meeting is relevant to consider his views about all Australian liquor laws. In that statement, signed by Mr Strong, he refers to all liquor licensing laws. The highlighting is mine. Click on the image to enlarge.
It is reasonable to assume that as Woolworths Chairman, by this statement, Mr Strong has at least some knowledge of those laws and the legal circumstance of all Woolworths liquor sales outlets in all Australian states. Yet he tells shareholders that ownership of hotels, being a requisite of enormous revenue for Woolworths Limited, mandates the company's continuation in the poker machine gambling business.

The truth is that only Queensland laws mandate connection between hotel ownership and off location sale of liquor. And, as visibly evidenced in my previous blog (click on the blog called "Queensland, Pokies and Alcohol") it is possible to "open" an on-premise and an off-premises liquor outlet even in Queensland. Put most simplistically, the Queensland restriction is that one can not be the licensee of the bottle shop or liquor barn without owning an associated hotel.

But the Queensland situation is a red herring. It is his mis-statements about the laws in all other states that are significant. Shareholders are asking simple questions about the harmful Woolworths poker machine business and the Woolworths Chairman is responding with answers that, in my opinion, misrepresent the facts. Mr Strong puts it to shareholders that the undertaking of their company in every state will be severely diminished if they do not follow the law and own hotels.

Furthermore, there is nothing in any Australian law that mandates that in order to operate a hotel license, one must operate poker machines. There are Queensland hotels without poker machines. It is open for Woolworths to surrender its gambling licences or cease to operate poker machine club licenses on behalf of others.

Readers can make up their own mind whether Mr Strong might be guilty of an offence against Section 1309 of the Corporations Act. Here it is:

False information etc.

              (1)  An officer or employee of a corporation who makes available or gives information, or authorises or permits the making available or giving of information, to:
             (a)  a director, auditor, member, debenture holder or trustee for debenture holders of the corporation; or
             (b)  if the corporation is taken for the purposes of Chapter 2M to be controlled by another corporation--an auditor of the other corporation; or
             (c)  an operator of a financial market (whether the market is operated in Australia or elsewhere) or an officer of such a market;

being information, whether in documentary or any other form, that relates to the affairs of the corporation and that, to the knowledge of the officer or employee:

             (d)  is false or misleading in a material particular; or
             (e)  has omitted from it a matter or thing the omission of which renders the information misleading in a material respect;

is guilty of an offence.

             (2)  An officer or employee of a corporation who makes available or gives information, or authorises or permits the making available or giving of information, to:
              (a)  a director, auditor, member, debenture holder or trustee for debenture holders of the corporation; or
              (b)  if the corporation is taken for the purposes of Chapter 2M to be controlled by another corporation--an auditor of the other corporation; or
              (c)  an operator of a financial market (whether the market is operated in Australia or elsewhere) or an officer of such a market;

being information, whether in documentary or any other form, relating to the affairs of the corporation that:

              (d)  is false or misleading in a material particular; or
              (e)  has omitted from it a matter or thing the omission of which renders the information misleading in a material respect;

without having taken reasonable steps to ensure that the information:

              (f)  was not false or misleading in a material particular; and
              (g)  did not have omitted from it a matter or thing the omission of which rendered the information misleading in a material respect;

is guilty of an offence.

             (3)  The references in subsections (1) and (2) to a person making available or giving, or authorising or permitting the making available or giving of, information relating to the affairs of a corporation include references to a person making available or giving, or authorising or permitting the making available or giving of, information as to the state of knowledge of that person with respect to the affairs of the corporation.

             (4)  Where information is made available or given to a person referred to in paragraph (1)(a), (b) or (c) or (2)(a), (b) or (c) in response to a question asked by that person, the question and the information are to be considered together in determining whether the information was false or misleading.



So what is the point of all this? What should Woolworths do?

Without hesitation, urgently correct the record.

But the real point is that if Woolworths Chairman cannot be relied upon to correctly answer simple question about pokies, can Woolworths be relied upon to responsibly operate their pokie business? It adds weight to the call for all pokies to be limited to a maximum $1 bet / $120 per hour maximum bet solution. This was the evidenced based measure of the Productivity Commission that they recommended be implemented without a trial.

Woolworths should announce their adoption of the Productivity Commission's recommendation of  1-120. At a lesser level, it would show true leadership.

At the most important level it would reduce the harm of poker machine gambling that is inflicted upon too many Australians.

7 comments:

Anonymous said...

Paul

I don't understand why you focus on Woolworths interests in gambling and not alcohol?

The social costs associated with alcohol estimated at $36 billion signifcantly higher than gambling.

Roy Morgan found that more than half of the total alcohol consumption is by people who drink excessively.

Is it that a signifcant amount of your family fortune is a result of being involved in the alcohol industry?

PokieWatch said...

To your question, the answer is 'no'.

I would really like to focus on how so many problems would be solved by removing all the Federal, State and local government tax breaks the poker machine clubs get away with. This was also the evidence based recomendation of the Productivity Commission.

But as one person without the huge resources of the club poker machine industry this is presently not possible even tho it is a serious issue.

Reducing the harm of poker machine gambling is so easily and inexpensively solved by adoption of 1-120 without a trial as also recommended by the Commission. Thus the focus.

Anonymous said...

Paul,

1. Clubs in NSW pay approx. $1.5 billion in taxes on a total revenue (not profit) of approx. $5 billion.

That seems to be an extremely high tax burden to me. The only businesses I can think of that pay more tax than that are pubs.

2. You could equally argue that reducing the aclohol content of beer, wine and spirits. Would be a cheap and effective way to reduce alcohol related harm. But then again that proposal wouldn't help some win a seat in parliament ;)

PokieWatch said...

1. OMG!!! It is lower than I ever thought. Only 30%!!!

And this on top of the fact that as mutuals, clubs pay NO federal income tax on pokie losses for members. And, if the club is a sporting body, no income tax at all.

It really is time to re-think taxation on poker machine clubs.

2. An interesting idea. Where are you going to take that idea?

Anonymous said...

Company income tax is 30% of net profit. Clubs pay tax equivalent to 30% of their total revenue (including non-gaming revenue) it's a big difference.

For example, Coke in Australia has an annual revenue of $4.9b and paid just over $150 million in income tax.

All clubs in NSW had a similar revenue $5b and paid $1.5b in taxes.

The fact that you think the alcohol idea is good speaks volumes.

PokieWatch said...

You omitted GST.

Normal business would enjoy your tax reductions for community donations to anyone.

Govt does need to look into club's privileges.

PokieWatch said...

You crazy guy!

I said "interesting" not "good". I asked you a question. You did not answer.

Do you misquote often? It is kind of charming!